8X8 INC /DE/

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. As discussed in the section titled “Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Quarterly Report, particularly those set forth under the section entitled "Risk Factors" in the Form 10-K.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. As discussed in the section titled “Forward-Looking Statements,” the following discussion and analysis contain forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Quarterly Report, particularly those set forth under the section entitled "Risk Factors" in the Form 10-K.

Previous wording

We generate service revenue from subscriptions to our communications services, as well as from usage of our platform. Our service subscription plans are sold on a per-user basis and are structured with increasing levels of functionality (designated as X1, X2, etc., through X8), based on the specific communication needs and customer engagement profile of each user. Platform usage, including telephony minutes, messaging, SMS, and digital and voice chat bot interactions, encompasses committed usage, which may be bundled with our service subscription plans, and uncommitted usage, which is sold on an as-used basis. Uncommitted usage of our platform increased as a percentage of revenue in fiscal year 2024 and is expected to continue to increase in the future with the introduction of new platform usage solutions.

Current wording

We generate service revenue from subscriptions to our communications services, as well as from usage of our platform. Our service subscription plans are sold on a per-user basis and are structured with increasing levels of functionality, based on the specific communication needs and customer engagement profile of each user. Platform usage, including telephony minutes, messaging, SMS, and digital and voice chat bot interactions, encompasses committed usage, which may be bundled with our service subscription plans, and uncommitted usage, which is sold on an as-used basis.

Previous wording

We are subject to risks and exposures, including those caused by adverse economic conditions. Macroeconomic conditions that could adversely affect our business include the global economic slowdown, continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency exchange rates. We continuously monitor the direct and indirect impacts of these factors, as well as the overall global economy and geopolitical landscape on our business and financial results.

Current wording

We are subject to risks and exposures, including those caused by adverse economic conditions. Macroeconomic conditions that could adversely affect our business include geopolitical instability, tariffs, continued inflation, increased interest rates, supply chain disruptions, decreased economic output and fluctuations in currency exchange rates. We continuously monitor the direct and indirect impacts of these factors, as well as the overall global economy and geopolitical landscape on our business and financial results.

Previous wording

While the implications of macroeconomic events on our business, results of operations and overall financial position remain uncertain over the long term, we expect that adverse economic conditions will continue to adversely impact our business in future periods. For example, our installed base business, which includes more than 51,000 small businesses, continues to experience macroeconomic headwinds.

Current wording

While the implications of macroeconomic events on our business, results of operations, and overall financial position remain uncertain over the long term, we expect that adverse economic conditions could adversely impact our business in future periods. For example, our installed base includes more than 50,000 small businesses, which tend to be disproportionately impacted by macroeconomic headwinds.

Previous wording

As part of our long-term strategy to grow our revenue, achieve profitability, and increase cash flow, we have focused on expanding our mid-market, enterprise and public sector customer base. We believe that continued innovation is a critical factor in attracting and retaining these customers and is an important variable in achieving sustainable growth. We are committed to maintaining a high level of investment in engineering to deliver product innovation across our Platform for CX, expand our ecosystem of integrated third-party applications, and maintain the high availability our customers require.

Current wording

As part of our long-term strategy to grow our revenue and increase profitability and cash flow, we are focused on retaining our existing customers and expanding our mid-market, enterprise and public sector customer base. We believe that continued innovation is a critical factor in attracting and retaining our customers and is an important variable in achieving sustainable growth. We are committed to maintaining a high level of investment in research and development to deliver innovation across our Platform for CX, expand our ecosystem of integrated third-party applications, and maintain the high platform availability our customers require.

Previous wording

Our primary focus involves the following: (i) accelerating innovation, particularly in our platform and contact center as-a-service, and (ii) establishing communications platform as-a-service leadership in the Asia Pacific region and leveraging these capabilities globally. We continue to innovate new products like 8x8 Engage, voice and digital Intelligent Customer Assistant, and Agent Assist, while enhancing our platform with new capabilities, such as the Customer Interaction Data Platform and composable agent and supervisor user interfaces. These innovations enable tightly integrated solutions that prioritize ease-of-use, out-of-the-box functionality, and rapid deployment for our target customers.

Current wording

Our primary focus involves the following: (i) accelerating innovation, particularly in enhancing our platform and contact center with artificial intelligence-based capabilities, and (ii) leveraging our CPaaS leadership in the Asia Pacific region to expand globally. We continue to introduce new products like 8x8 Engage, add capabilities that allow our customers to enhance employee and customer experience, and expand our Technology Partner Ecosystem to provide complete solutions tailored to specific use cases. We are also enhancing our platform foundation with cutting edge technology, such as the Customer Interaction Data Platform and composable agent and supervisor user interfaces. These innovations enable tightly integrated solutions that prioritize ease-of-use, out-of-the-box functionality, and rapid deployment.

Previous wording

Our investment in innovation has been complemented by initiatives to manage the costs of delivering our services and improve our sales efficiency. We continue to monitor factors that could have an impact on customer buying behavior and demand, including macroeconomic conditions, the competitive environment, contract duration, churn, upsell and down-sell, renewals, and payment terms, all of which have caused variability in our results and may continue to do in the future. We expect the total dollar amount of cost of service revenue and as a percentage of revenue to vary with the amount of service revenue and the mix of subscription and usage revenue within service revenue. To improve our sales efficiency, we continue to invest in marketing programs to drive awareness for our solutions, and we have increased training for our sales teams, and invested in tools to increase productivity. We have also expanded our partner programs to extend our reach within our target customer market, placing increased emphasis on developing a community of value-added resellers who provide implementation services and Tier 1 customer support in addition to sales. To support our customers and partners, we have expanded our customer success organization and continue to invest in improvements to our back-office processes to increase our operational efficiency over time.

Current wording

Our investment in innovation has been complemented by initiatives to manage the cost of delivering our services and improve our sales efficiency. We continue to monitor factors that could have an impact on customer buying behavior and demand, including macroeconomic conditions, the competitive environment, contract duration, churn, upsell and down-sell, renewals, and payment terms, all of which have caused variability in our results and may continue to do in the future. We expect the cost of delivering our communication services, both in total dollars and as a percentage of service revenue, to vary with the amount of service revenue and the mix of subscription and usage revenue within service revenue. To improve our sales efficiency over time, we continue to invest in marketing programs to drive awareness for our solutions, and we have increased training for our sales teams, and invested in tools to increase productivity. We have also expanded our reseller partner programs to extend our reach within our target customer market, placing increased emphasis on developing a community of value-added resellers who provide implementation services and Tier 1 customer support in addition to sales. To support our customers and partners, we have expanded our customer success organization and continue to invest in improvements to our back-office processes to increase our operational efficiency over time.

Previous wording

Service revenue consists of communication services subscriptions, platform usage revenue, and related fees from our unified communications as-a-service, contact center as-a-service, and communications platform as-a-service offerings. We plan to increase service revenue through a combination of new customer acquisition, cross-sell of additional products to existing customers, including new products resulting from our increased investment in innovation, geographic expansion of our customer base outside the United States, and sales initiatives with our Technology Partner Ecosystem partners, and potential strategic acquisitions of technologies and businesses.

Current wording

Service revenue consists of communication services subscriptions, platform usage revenue, and related fees from our UCaaS, CCaaS, and CPaaS offerings. We plan to increase service revenue through a combination of new customer acquisition, cross-sell of additional products to existing customers, including new products resulting from our increased investment in innovation, artificial intelligence, geographic expansion of our customer base outside the United States, innovation in our products and technologies, and through strategic acquisitions of technologies and businesses.

Previous wording

Other revenue consists of revenue from professional services, primarily for deployment of our solutions and/or platform, and revenue from sales and rentals of IP telephones in conjunction with our cloud telephony service. Other revenue is dependent on the number of customers who choose to purchase or rent IP telephone hardware in conjunction with our service instead of using the solution on their cell phone, computer, or other compatible device, and/or choose to engage our professional services organization for implementation and deployment of our cloud services.

Current wording

Other revenue consists of revenue from professional services, primarily in support of deployment of our solutions and/or platform, and revenue from sales and rentals of IP telephones in conjunction with our cloud telephony service. Other revenue is dependent on the number of customers who choose to purchase or rent IP telephone hardware in conjunction with our service instead of using the solution on their cell phone, computer, or other compatible device, and/or choose to engage our professional services organization for implementation and deployment of our cloud services.

Previous wording

Cost of service revenue consists primarily of costs associated with network operations and related personnel, technology licenses, amortization of capitalized internal-use software, other communication origination and termination services provided by third-party carriers, and other costs such as customer service, and technical support costs. We allocate overhead costs, such as information technology and facilities, to cost of service revenue, as well as to each of the operating expense categories, generally based on relative headcount. Our information technology costs include costs for information technology infrastructure and personnel. Facilities costs primarily consist of office leases and related expenses.

Current wording

Cost of service revenue consists primarily of costs associated with network operations and related personnel, technology licenses, amortization of capitalized internal-use software, other communication origination and termination services provided by third-party carriers, outsourced customer service call center operations, and other costs such as customer service, and technical support costs. We allocate overhead costs, such as information technology and facilities, to cost of service revenue, as well as to each of the operating expense categories, generally based on relative headcount. Our information technology costs include costs for information technology infrastructure and personnel. Facilities costs primarily consist of office leases and related expenses.

Previous wording

Cost of other revenue consists primarily of direct and indirect costs associated with the purchase, shipping and handling, and recycling of IP telephones as well as the personnel costs, and other expenditures incurred in connection with the professional services associated with the deployment and implementation of our products, and allocated information technology and facilities costs.

Current wording

Cost of other revenue consists primarily of direct and indirect costs associated with the purchase and shipping and handling of IP telephone hardware as well as the scheduling, shipping and handling, personnel costs, and other expenditures incurred in connection with the professional services associated with the deployment and implementation of our products, and allocated information technology and facilities costs.

Previous wording

Sales and marketing expenses consist primarily of personnel and related costs, sales commissions, including those to channel partners, trade shows, advertising and other marketing, demand generation, and promotional expenses, as well as allocated information technology and facilities costs.

Current wording

Sales and marketing expenses consist primarily of personnel and related costs, sales commissions, including those to the channel, trade shows, advertising and other marketing, demand generation, and promotional expenses, as well as allocated information technology and facilities costs.

Previous wording

General and administrative expenses consist primarily of personnel and related costs, professional services fees, corporate administrative costs, state and local taxes and regulatory fees, and allocated information technology and facilities costs.

Current wording

General and administrative expenses consist primarily of personnel and related costs, professional services fees, corporate administrative costs, tax and regulatory fees, and allocated information technology and facilities costs.

Previous wording

Other expense, net, consists primarily of gains or losses on debt extinguishment, gain or loss on warrant remeasurement, interest income, gains or losses on foreign exchange transactions, as well as other income.

Current wording

Other expense, net, consists primarily of losses on debt extinguishment, gain or loss on warrant remeasurement, interest income, gains or losses on foreign exchange transactions, as well as other income.

Previous wording

Provision for income taxes consist primarily of foreign income taxes and state minimum taxes in the United States. As we expand the scale of our international business activities, any changes in the United States and foreign taxation of such activities may increase our overall provision for income taxes in the future. We have a valuation allowance for our United States deferred tax assets, including federal and state non-operating loss carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income in the United States.

Current wording

Provision for income taxes consists primarily of foreign income taxes and state minimum taxes in the United States. As we expand the scale of our international business activities, any changes in the United States and foreign taxation of such activities may increase our overall provision for income taxes in the future. We have a valuation allowance for our U.S. deferred tax assets, including federal and state net operating loss carryforwards. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income in the United States.

Previous wording

Service revenue decreased by $1.6 million, or 0.9%, for the three months ended December 31, 2024 compared to the three months ended December 31, 2023. This change was driven by a decrease in revenue from subscriptions of $4.3 million primarily due to a decline in revenue from customers on the Fuze platform partially offset by an increase of $2.7 million in platform usage revenue.

Current wording

Service revenue increased by $3.5 million, or 2.0%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024. This change was driven by an increase of $8.2 million in platform usage revenue partially offset by a decrease in subscription revenue of $4.7 million consisting predominantly of former Fuze customers.

Previous wording

Other revenue decreased by $0.5 million, or 8.7%, for the three months ended December 31, 2024 compared to the three months ended December 31, 2023, due to lower product and professional service revenue of $0.4 million and $0.1 million, respectively.

Current wording

Other revenue decreased by $0.3 million, or 5.5%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, due to lower product revenue of $0.8 million partially offset by an increase in professional service revenue of $0.5 million.

Previous wording

Cost of service revenue increased by $1.5 million, or 3.2%, for the three months ended December 31, 2024 compared to the three months ended December 31, 2023, primarily due to an increase of $4.0 million in costs to deliver our subscription and platform usage services. This increase was partially offset by decreases of $0.9 million in amortization of capitalized software and $1.6 million in salaries, benefits, and consulting costs.

Current wording

Cost of service revenue increased by $4.3 million, or 8.7%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to an increase of $7.1 million in costs to deliver our subscription and platform usage services and $1.1 million in salaries, benefits and consulting costs. This increase was partially offset by decreases of $2.4 million in amortization of capitalized software and $1.5 million in stock-based compensation.

Previous wording

Cost of other revenue decreased by $1.0 million, or 4.3%, for the nine months ended December 31, 2024 compared to the nine months ended December 31, 2023, primarily due to a decrease of $0.7 million in lower product costs associated with IP telephone hardware coupled with a decrease of $0.3 million in salaries, benefits, and consulting costs to deliver our professional services.

Current wording

Cost of other revenue decreased by $0.6 million, or 7.7%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to decreases of $0.6 million in lower product costs associated with IP telephone hardware and $0.3 million of stock-based compensation. These decreases were partially offset by an increase of $0.3 million in salaries, benefits, and consulting costs to deliver our professional services.

Previous wording

Research and development expenses decreased by $3.0 million, or 9.0%, for the three months ended December 31, 2024 compared to the three months ended December 31, 2023, primarily due to decreases of $2.0 million in stock-based compensation, $1.3 million in facilities costs, $0.8 million in combined salaries, benefits, and consulting costs, and $0.3 million in other costs necessary for us to conduct our product, platform development and engineering efforts. These decreases were partially offset by increases of $1.0 million in costs to operate data centers and $0.4 million in internally-developed software.

Current wording

Research and development expenses decreased by $3.8 million, or 11.7%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to decreases of $3.1 million in stock-based compensation, $1.2 million in internally-developed software and other costs and $0.4 million in costs to operate data centers and facilities. These decreases were partially offset by an increase of $0.9 million in combined salaries, benefits, and consulting costs necessary for us to conduct our product, platform development and engineering efforts.

Previous wording

Sales and marketing expenses decreased by $1.4 million, or 2.0%, for the three months ended December 31, 2024 compared to the three months ended December 31, 2023, primarily due to decreases of $2.3 million in channel commissions and amortization of deferred commissions and $1.7 million in stock-based compensation expense. These decreases were partially offset by increases of $1.4 million in paid media and other marketing services costs and $1.2 million in salaries, benefits, and consulting costs.

Current wording

Sales and marketing expenses increased by $1.1 million, or 1.6%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to increases of $3.4 million in salaries, benefits, and consulting costs and $1.7 million in paid media and other marketing services costs. These increases were partially offset by decreases of $2.8 million in channel commissions and amortization of deferred contract acquisition costs and $1.2 million in stock-based compensation expense.

Previous wording

Interest expense decreased by $4.2 million, or 41.8%, for the three months ended December 31, 2024 compared to the three months ended December 31, 2023, primarily due to the 2022 Term Loan debt extinguishment and decreased interest rate and principal on the 2024 Term Loan. See Note 8, Convertible Senior Notes and Term Loan, for further details.

Current wording

Interest expense decreased by $6.0 million, or 60.1%, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to a lower interest rate and principal balance on the 2024 Term Loan compared to the 2022 Term Loan and capitalized interest related to property, plant and equipment from general borrowing costs. See Note 8, Convertible Senior Notes and Term Loan, for further details.

Previous wording

We recognized $0.8 million of other income, net during the three months ended December 31, 2024 compared to $1.3 million of other expense, net during the three months ended December 31, 2023, primarily due to a $2.2 million decrease in loss on foreign exchange and other expenses and a decrease of $0.5 million in gain on the remeasurement of warrants issued in connection with the term loan. These expense decreases were offset by a $0.6 million decrease in interest income earned on highly liquid investments.

Current wording

We recognized $0.4 million of other income, net during the three months ended June 30, 2025, compared to $1.7 million of other expense, net during the three months ended June 30, 2024, primarily due to a reduced gain of $1.5 million on the remeasurement of Warrants issued in connection with the 2022 Term Loan and $0.6 million decrease in interest income earned on cash and cash equivalents. These decreases were partially offset by a $0.8 million increase due to foreign exchange.

Previous wording

The provision for income taxes increased by $0.4 million for the three months ended December 31, 2024 compared to the three months ended December 31, 2023, driven by an increase in estimated United States cash taxes recorded in fiscal year 2025 compared to fiscal year 2024.

Current wording

The provision for income taxes increased by $0.6 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to an increase in foreign tax expense driven by an increase in profitability of certain foreign entities in fiscal year 2026 compared to fiscal year 2025.

Previous wording

The following is a summary of our cash and cash equivalents and investments (in thousands):

Current wording

The following is a summary of our cash and cash equivalents (in thousands):

Previous wording

(1) Restricted cash supports letters of credit securing leases for office facilities and certain equipment for the same periods.

Current wording

(1) Restricted cash supports letters of credit securing leases for office facilities and certain equipment for the same periods, and an accrued holdback related to a business combination (see Note 1, The Company and Significant Accounting Policies).

Previous wording

Our primary requirements for liquidity and capital are working capital needs due to delivery of our various products to customers, research and development, sales and marketing activities, principal and interest payments on our outstanding debt and other general corporate needs. Historically, these cash requirements have been met from cash provided by operating activities and our cash and cash equivalents balances. Our current capital deployment strategy for fiscal year 2025 is to use excess cash on hand to support our continued growth initiatives into select markets and planned software development activities and pay down our debt. As of December 31, 2024, we are not party to any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. Significant cash requirements for the fiscal year include our operating lease obligations, interest payments related to our debt obligations, and operating and capital purchase commitments. For information regarding our expected cash requirements and timing of payments related to leases and non-cancelable purchase commitments, see Note 6, Leases, and Note 7, Commitments and Contingencies, respectively, to the consolidated financial statements in our Form 10-K. Additionally, see Note 8, Convertible Senior Notes and Term Loan, to the consolidated financial statements in our Form 10-K for more information related to our debt obligations and applicable covenants.

Current wording

Our primary requirements for liquidity and capital are working capital needs due to delivery of our various products to customers, research and development, sales and marketing activities, principal and interest payments on our outstanding debt and other general corporate needs. Historically, these cash requirements have been met from cash provided by operating activities and our cash and cash equivalents balances. Our current capital deployment strategy for fiscal year 2026 is to invest excess cash on hand to support our continued growth initiatives into select markets and planned software development activities, and pay down our debt. As of June 30, 2025, we are not party to any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. Significant cash requirements for the fiscal year include our operating lease obligations, interest payments related to our debt obligations, and operating and capital purchase commitments. For information regarding our expected cash requirements and timing of payments related to leases and non-cancellable purchase commitments, see Note 6, Leases, and Note 7, Commitments and Contingencies, respectively, to the consolidated financial statements. Additionally, refer to Note 8, Convertible Senior Notes and 2024 Term Loan, to the consolidated financial statements for more information related to our debt obligations and applicable covenants.

Previous wording

We are aware that our 2028 Notes are currently trading at a substantial discount to their respective principal amount. Furthermore, our outstanding 2024 Term Loan allows for voluntary prepayments. In order to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption, we may, from time to time, make prepayments on our 2024 Term Loan, and seek to retire or purchase our outstanding debt through open-market purchases, privately negotiated transactions or otherwise. Any such transactions will be dependent upon several factors, including our liquidity requirements, contractual restrictions, prevailing market conditions, and other factors. Whether or not we engage in any such transactions will be determined at our discretion. The amounts involved may be material.

Current wording

As of June 30, 2025, our 2028 Notes were trading at a discount to their respective principal amount. We may seek to retire or purchase our outstanding debt through open-market purchases, privately negotiated transactions or otherwise, which may have an impact on our liquidity requirements. Any such transactions will be dependent upon several factors, including our liquidity requirements, contractual restrictions, prevailing market conditions, and other factors. Whether or not we engage in any such transactions will be determined at our discretion. For historical debt payments, see Note 8, Convertible Senior Notes and Term Loan.

Previous wording

Cash provided by operating activities decreased by $8.7 million to $57.7 million for the nine months ended December 31, 2024, mainly due to an increase in cash paid to suppliers and employees partially offset by an increase in cash received from customers. Cash used in investing activities decreased $22.5 million to $10.2 million for the nine months ended December 31, 2024, mainly due to decreases in the purchases, sales, and maturities of investments. Cash used in financing activities increased by $36.5 million to $59.1 million for the nine months ended December 31, 2024, mainly due to principal repayments for our term loan, payments for debt issuance costs, and other financing activities.

Current wording

Cash provided by operating activities decreased by $6.3 million to $11.9 million for the three months ended June 30, 2025, primarily due to changes in working capital, the timing of billings and customer collections, as well as the amount and timing of disbursements to our vendors. Cash used in investing activities increased $1.3 million to $4.4 million for the three months ended June 30, 2025, mainly due to an increase in capitalized internal-use software costs. Cash used in financing activities increased by $17.0 million to $17.3 million for the three months ended June 30, 2025, mainly due to principal repayments for our term loan, payments for repurchases of shares of common stock, and other financing activities.

Previous wording

The 2024 Term Loan bears interest at an annual rate equal to Term SOFR, plus a margin of either 2.50%, 2.75% or 3.00% based on the consolidated total net leverage ratio of the Company and its subsidiaries. The initial margin will be 3.00% for the fiscal quarter ending September 30, 2024. We have the option to pay interest monthly, quarterly, or semi-annually. During the three months ended December 31, 2024, we elected quarterly payment terms which resulted in cash payments of $3.2 million. During the three months ended March 31, 2025, we have elected monthly interest payment terms, which will result in cash payments of approximately $2.9 million. As of August 5, 2024, the scheduled principal repayments of $22.5 million in fiscal year 2025 ($7.5 million on October 31, 2024, December 31, 2024 and March 31, 2025, respectively), $37.5 million in fiscal year 2026 ($7.5 million on June 30, 2025 and $10.0 million on September 30, 2025, December 31, 2025 and March 31, 2026, respectively), and $47.5 million in fiscal year 2027 ($10.0 million on June 30, 2026, $12.5 million on September 30, 2026 and each quarter thereafter through maturity) are required, and the remaining $92.5 million principal is due before or upon maturity in fiscal year 2028. These annualized repayments will be made in quarterly installments. As of December 31, 2024, the debt issuance costs are amortized to interest expense over the term of the 2024 Term Loan at an effective interest rate of 8.69%.

Current wording

The 2024 Term Loan bears interest at an annual rate equal to the Term SOFR, plus a margin of either 2.50%, 2.75% or 3.00% based on the consolidated total net leverage ratio of the Company and its subsidiaries. The initial margin was 3.00% for the fiscal quarter ending September 30, 2024 and remained 3.00% as of June 30, 2025. We have the option to pay interest monthly, quarterly, or semi-annually. During the three months ended June 30, 2025, we elected monthly interest payment terms which resulted in cash payments of $2.6 million. For the three months ending September 30, 2025, we have elected monthly interest payment terms, which will result in cash payments of approximately $2.4 million. As of June 30, 2025, the debt issuance costs were amortized to interest expense over the term of the 2024 Term Loan at an effective interest rate of 8.65%.

Previous wording

Under the terms of the 2024 Credit Agreement, we have the right to prepay the 2024 Term Loan at any time without any premium or penalty. On October 7, 2024, we paid $15.0 million of quarterly principal payments due October 31, 2024 and December 31, 2024 under the 2024 Term Loan. On November 1, 2024, we prepaid $18.0 million of additional principal payments. These short-term principal debt payments are accounted for as partial debt extinguishment transactions. The carrying value of the 2024 Term Loan, including the unamortized debt discount and issuance costs, was derecognized. The difference of $0.2 million between the cash consideration paid to partially extinguish the 2024 Term Loan and the carrying value of the 2024 Term Loan was recognized as a loss on debt extinguishment included in the loss on debt extinguishment line item recorded in other expense in the condensed consolidated statement of operations. The remaining principal amount of the 2024 Term Loan after the payments is $167.0 million. As of December 31, 2024, we have paid $22.5 million and $10.5 million of the originally scheduled principal repayments for fiscal year 2025 and fiscal year 2026, respectively. On January 10, 2025, we paid $15.0 million of quarterly principal payments due July 31, 2025 and October 31, 2025 under the 2024 Term Loan. See Note 14, Subsequent Events, for more information regarding this prepayment.

Current wording

Under the terms of the 2024 Credit Agreement, the Company has the right to prepay the 2024 Term Loan at any time without any premium or penalty. The Company completed three principal payments of the 2024 Term Loan during fiscal year 2025 for a total of $48.0 million in aggregate principal amount. On April 11, 2025, the Company prepaid $15.0 million of quarterly principal payments due under the 2024 Term Loan. As of June 30, 2025, the scheduled remaining principal repayments are $44.5 million in fiscal year 2027 ($7.0 million on June 30, 2026 and $12.5 million on September 30, 2026 and each quarter thereafter through maturity) and $92.5 million principal is due before or upon maturity in fiscal year 2028. These annualized repayments will be made in quarterly installments. As of June 30, 2025, the Company has paid $37.5 million and $3.0 million of the originally scheduled principal repayments for fiscal year 2026 and 2027, respectively, and the remaining principal amount of the 2024 Term Loan after the payments is $137.0 million.

Previous wording

On August 5, 2024, we repaid in full the outstanding principal amount and accrued interest of the 2022 Term Loan using the proceeds of the 2024 Term Loan and cash on hand. The Repayment was accounted for as a debt extinguishment. The carrying value of the 2022 Term Loan, including the unamortized debt discount and issuance costs, was derecognized. The difference of $12.0 million between the cash consideration paid to extinguish the 2022 Term Loan and the carrying value of the 2022 Term Loan was recognized as a loss on debt extinguishment included in the loss on debt extinguishment line item recorded in other expense in the condensed consolidated statement of operations. The Warrants continued to be outstanding with no change in terms in connection with the Repayment or issuance of the 2024 Term Loan.

Current wording

On August 5, 2024, we repaid in full the outstanding principal amount and accrued interest of the 2022 Term Loan using the proceeds of the 2024 Term Loan and cash on hand. The Repayment was accounted for as a debt extinguishment. The carrying value of the 2022 Term Loan, including the unamortized debt discount and issuance costs, was derecognized. The difference of $12.0 million between the cash consideration paid to extinguish the 2022 Term Loan and the carrying value of the 2022 Term Loan was recognized as a loss on debt extinguishment included in the loss on debt extinguishment line item recorded in other expense in the condensed consolidated statement of operations and comprehensive income (loss). The Warrants continue to be outstanding with no change in terms in connection with the Repayment or issuance of the 2024 Term Loan.

Previous wording

We previously used the proceeds from the 2022 Credit Agreement to fund the cash portion of an exchange of the Company's approximately $403.8 million principal amount of 0.50% convertible senior notes due 2024 for cash plus approximately $201.9 million of 4.00% convertible senior notes due 2028, and the concurrent repurchase of approximately $60.0 million of our common stock with the counterparties to such exchange. Loans made under the 2022 Credit Agreement bore interest at an annual rate equal to the Term SOFR, subject to a floor of 1.00% and a credit spread adjustment of 0.10%, plus a margin of 6.50%. During the three months ended September 30, 2024, we paid $2.7 million of interest under the 2022 Term Loan. See Note 8, Convertible Senior Notes and Term Loan, to our condensed consolidated financial statements for details.

Current wording

Loans made under the 2022 Credit Agreement bore interest at an annual rate equal to the Term SOFR, subject to a floor of 1.00% and a credit spread adjustment of 0.10%, plus a margin of 6.50%. During the three months ended June 30, 2024, we paid $7.7 million of interest under the 2022 Term Loan.

Previous wording

As of March 31, 2024, our material cash requirements and other obligations were $690.1 million. During the nine months ended December 31, 2024, we entered into a $24.1 million noncancelable three-year hosting service contract. Under this agreement, $4.5 million remains due during fiscal year 2025, $8.5 million will be due during fiscal year 2026, $6.0 million will be due during fiscal year 2027 and $2.5 million will be due during fiscal year 2028. For information regarding our material cash requirements and other obligations, see Item 7, "Management's Discussion and Analysis", in our Form 10-K.

Current wording

As of March 31, 2025, our material cash requirements and other obligations were $527.1 million. During the three months ended June 30, 2025, the Company increased its non-cancellable three-year hosting service contract commitment from $24.1 million to $54.0 million. Under this agreement, $7.1 million remains due during fiscal year 2026, $10.0 million will be due during fiscal year 2027 and $10.0 million will be due during fiscal year 2028. For information regarding our material cash requirements and other obligations, see Item 7, "Management's Discussion and Analysis", in the Form 10-K.

Previous wording

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). See Note 1, The Company and Significant Accounting Policies, in the notes to the unaudited condensed consolidated financial statements included in this Quarterly Report, which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. There have been no significant changes during the nine months ended December 31, 2024 to our critical accounting policies and estimates previously disclosed in our Form 10-K.

Current wording

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). See Note 1, The Company and Significant Accounting Policies, in the notes to the unaudited condensed consolidated financial statements included in this Quarterly Report, which describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. There have been no significant changes during the three months ended June 30, 2025 to our critical accounting policies and estimates previously disclosed in our Form 10-K.